Presentation Transcript

CHAPTER # 14Developing Pricing Strategies And Programs :

Slide 3:

PRICING
“Pricing strategy always has been more of a poker game than a science.”
William T. Moran, Admar Research
“Successful pricing is an art, not a science.”
John I. Leahy, Black & Decker
“Pricing decisions are not easy to make; they are often inherently ‘soft’.”
William E. Johnson, William E. Johnson Assoc.

Slide 4:

The amount of money charged for a product or service, or the sum of the values that consumers exchange for the benefits of having or using the product or service.

Slide 5:

Psychological Pricing :

Psychological Pricing :

Psychological Pricing

Psychological Pricing :

Psychological Pricing Used to play on consumer perceptions
Classic example - £9.99 instead of £10.99!
Links with value pricing – high value goods priced according to what consumers THINK should be the price

Market Skimming :

Market Skimming High price, Low volumes
Skim the profit from the market
Suitable for products that have short life cycles or which will face competition at some point in the future (e.g. after a patent runs out)
Examples include: Playstation, jewellery, digital technology, new DVDs, etc. Many are predicting a firesale in laptops as supply exceeds demand.

Slide 23:

Price Reductions to Increase Market Share

Slide 24:

Skimming vs. Penetration

Other Price-Level Policies :

Other Price-Level Policies +

Slide 26:

Setting Pricing Policy Selecting the pricing
objective

Slide 27:

Price Elasticity Price elasticity is a measure of consumers’ price sensitivity
Even a crude estimate of price elasticity is useful input in pricing decisions
What will happen to my sales if I change my price?
What will happen if tuition is increased 10%? e = Percent change in quantity demanded Percent change in price

Slide 28:

Less Price Sensitive Unique Value
Substitutes
Less Aware
Difficult to Compare
Expenditure to total income
Expenditure to total cost Cost borne by others
Sunk investment
Higher quality or prestige
Perishable

Demand CurvesInelastic and Elastic :

Estimating Demand Curves :

Price Elasticity of Demand :

The percentage change in quantity demanded relative to a percentage change in price. Price Elasticity of Demand

Slide 32:

Setting Pricing Policy 1. Selecting the pricing
objective

Slide 33:

Types of Costs Fixed costs
Variable costs
Total costs
Average cost
Cost at different levels of production

Types of costs levels of Production :

Types of costs levels of Production Deviate with changes
in level of output Variable
Costs Fixed
Costs Do not deviate as level of
output changes TYPES OF COSTS Total Costs
Sum of the Fixed and Variable Costs for a Given
Level of Production

Slide 35:

Cost / Unit at Different Levels Cost per Unit Quantity Produced per day 1,000

Accumulated Production :

Accumulated Production

Accumulated Production :

Accumulated Production

Target Costing :

Target Costing Target cost is the cost that can be incurred while still earning the desired profit
Selling price – desired profit = target cost
The customer sets the price
Profit must be achieved through cost control

Slide 39:

Setting Pricing Policy 1. Selecting the pricing
objective

Step 4: Analyzing Competitors’ Costs, Prices and Offers :

Step 4: Analyzing Competitors’ Costs, Prices and Offers Identify nearest price competitors
Take competitors’ features and prices into account
Make decision to charge more, the same or less than competitors
Monitor competitors’ reaction to your pricing strategy

STEP 5 Pricing Methods :

Value Pricing :

Value Pricing

Value Pricing :

Value Pricing Price set in accordance with customer perceptions about the value of the product/service
Examples include status products/exclusive products Companies may be able to set prices according to perceived value.

Going Rate (Price Leadership) :

Going Rate (Price Leadership)

Going Rate (Price Leadership) :

Going Rate (Price Leadership) In case of price leader, rivals have difficulty in competing on price – too high and they lose market share, too low and the price leader would match price and force smaller rival out of market.
May follow pricing leads of rivals especially where those rivals have a clear dominance of market share
Where competition is limited, ‘going rate’ pricing may be applicable – banks, petrol, supermarkets, electrical goods – find very similar prices in all outlets.

Tender Pricing :

Tender Pricing

ACTION Pricing :

ACTION Pricing Many contracts awarded on a tender basis
Firm (or firms) submit their price for carrying out the work
Purchaser then chooses which represents best value
Mostly done in secret
TYPES OF ACTUIONS:
English auctions
Dutch Auctions
Sealed-bid auctions

Slide 50:

Setting Pricing Policy 1. Selecting the pricing
objective

Impact of other marketing ActivitiesCompany Pricing policies:AirlinesGain-and-risk-sharing pricingImpact of price on other parties:OPEC :

Impact of other marketing ActivitiesCompany Pricing policies:AirlinesGain-and-risk-sharing pricingImpact of price on other parties:OPEC

Price Discounts and Allowances :

Slide 55:

Reductions from List Price
Cash discount: price reduction offered to a consumer, industrial user, or marketing intermediary in return for prompt payment of a bill
2/10 net 30, a common cash discount notation, allows consumers to subtract 2 percent from the amount due if payment is made within 10 days 19-55 Discounts and Allowances

Slide 56:

Trade Discounts: payment to a channel member or buyer for performing marketing functions; also known as a functional discount 19-56

Slide 59:

Allowances
Trade-in: credit allowance given for a used item when a new item is purchased
Promotional allowance: advertising or promotional funds provided by a manufacturer to other channel members in an attempt to integrate the promotional strategy within the channel
Rebates: refund for a portion of the purchase price, usually granted by the product’s manufacturer 19-59

Pricing Policies :

Pricing Policies Pricing policy: general guidelines based on pricing objectives and intended for use in specific pricing decisions
Psychological pricing: pricing policy based on the belief that certain prices or price ranges make a good or service more appealing than others to buyers 19-60

Promotional Pricing :

Loss Leader :

Loss Leader Goods/services deliberately sold below cost to encourage sales elsewhere
Typical in supermarkets, e.g. at Christmas, selling bottles of gin at £3 in the hope that people will be attracted to the store and buy other things
Purchases of other items more than covers ‘loss’ on item sold
e.g. ‘Free’ mobile phone when taking on contract package

Initiating and responding Price Changes :

Slide 65:

Price discrimination: The use of different prices for different customers.
It is illegal if a price advantage is granted to one, but not another, where both compete and the articles are similar.
Granting promotional allowances must be done on a proportionate basis to all customers. 14 - 65

Slide 66:

Competitive Pricing Strategy: reduces emphasis on price as a competitive variable by pricing goods at the general level of competitors
Firms focus their own marketing efforts on the product, distribution and promotion elements of the marketing mix 19-66